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How Your Bad Credit May Be Hurting Your Kids

Jamie Cattanach is a personal finance writer whose work has been featured at The Motley Fool, Yahoo! Finance, CNBC Money and elsewhere. She got her journalistic start as a staff writer at The Penny Hoarder, where she became...

But if you’re a parent, it’s even worse. No, you don’t pass down credit history like green eyes or brown hair. But your poor credit could be hurting your kids in ways that you might not have considered.

1. You may not be able to cosign student loans …

With average tuition at public universities reaching as high as $39,400 depending on state and residency status, paying for college is no small feat. Your kids will likely need loans to pull it off — and since most 18-year-olds have little credit history to speak of, a cosigner can be a major boon.

But if your own credit history is suffering, adding your name to the application won’t help matters. Even if they’re approved, your kids may face high interest rates, an unpleasant addition to an already towering debt total.

And it doesn’t end with college. If your credit history is strong, cosigning your children’s first mortgage agreement is a great way to help them become homeowners. But if your credit history is poor, that opportunity goes out the window. (And that’s a rented window, not an owned one.)

2. … or help them build their credit with an authorized user card.

No one is born into this world with a credit history. It’s something we have to build over time — and our success or failure to do so can have major consequences, like keeping us from purchasing a car, a home or even getting a job.

And while building credit is important, it can be difficult to get started. You have to find a lender who will extend credit when you have no history to report, which is a tall order.

One common way parents help their kids build credit from scratch is by signing them onto an existing credit card account as an authorized user. That way, lenders, landlords and employers won’t see a totally blank page when they pull your child’s report down the line. Plus, it gives your kids time to learn how to responsibly use a credit card with you as a financial fallback before applying for their own.

But if you have poor credit, any authorized users will inherit that history along with the card — which will put your kids in a poor starting place at very beginning of their credit journey.

3. You’ll pay more for insurance …

Along with factors like location and projected risk level, your credit history is used to calculate your homeowners and auto insurance premiums: The lower your score, the higher the payment might be. If your kids are of driving age, they’ll likely start out on your insurance plan, which can already be a costly prospect. Add the poor-credit penalty to the mix, and paying for your insurance becomes a serious endeavor.

If you find you can’t afford insurance at all, your kids might end up driving without coverage. Along with being illegal in all but two states, this puts you at even greater financial risk should an accident happen.

4. … and everything else.

Raising a kid is already expensive, and creating a fun childhood is even costlier. Money for family vacations — or even a trip to the movies or the zoo — is usually a lot harder to come by when you’ve got bad credit. You’re likely spending every dime you make keeping ahead of multiple delinquent accounts or chipping away at astronomical balances, leaving little wiggle room for family leisure.

5. You may pass on your bad credit habits to your kids.

When it comes to financial habits, the apple usually doesn’t fall far from the tree — and that’s not just an anecdotal conclusion.

A 2016 study showed “evidence of intergenerational consistency in financial behavior between parents and their children.” (In other words, if you’re no good at managing your credit, your kids probably won’t be either.)

As you know, your credit history affects everything from employment prospects to lease applications. You want your kids to go out into the world with a fighting chance!

Raising a kid who has good credit

If you’ve got poor credit and kids, this post was a whole lot of bad news. But there is a silver lining: You still have an opportunity to raise a kid with stellar credit.

For starters, don’t add your child on as an authorized credit user or cosign any of their loans. As discussed above, doing so will just clone your poor credit history onto his or her blank slate.

If you’re serious about paying off your debt and improving your financial habits, use your situation as an opportunity for a teachable moment. There’s frightfully little personal finance education in American schools, so you’re an important source of information for your children. Maintaining transparency with your finances is a great way to show your kids how to properly manage their own money — and how not to.